Surajeet Das Gupta: Call drop on CDMA spectrum

It was a New Year gift for Russian President Vladimir Putin. On Monday, the Empowered Group of Ministers (EGoM) on Telecom under Finance Minister P Chidambaram decided to slash the base price for the re-auction of 800 MHz CDMA spectrum by up to half when it found no takers at Rs 18,200 crore for 5 MHz in the November auctions.

No prizes for guessing that the chief beneficiary of the move is Russian telecom company Sistema, which runs a pan-India CDMA network with Delhi-based Shyam group. The other two CDMA players, Reliance Communications (RCom) and Tata Teleservices (TTSL), are increasingly shifting their attention and investment to GSM operations and are clearly not interested in getting more spectrum in this band.

Though Sistema is one of the many telecom companies to lose its operating licence following a Supreme Court-mandated cancellation in February last year, its predicament is more serious than the other licence losers. For one, Sistema has invested a huge sum of $3.2 billion and has over 16 million customers — the government recently granted it a second extension of operations. For another, its pure-play CDMA dependency makes it more vulnerable than other operators. That is why Putin made a rushed, overnight visit to meet Prime Minister Manmohan Singh just before Christmas.

If the Cabinet approves the EGoM’s decision, Sistema will get some reprieve — but only a temporary one. It will have to fork out about Rs 2,902 crore, which includes an adjustment of Rs 1,658 crore that it originally paid for the licence. That is certainly a small price to pay to keep its investment intact. It also has the alternative of waiting for a decision on the curative petition it has filed, challenging the licence cancellation in the Supreme Court. If it gets a favourable decision and the spectrum is restored, it will have to pay nothing. If the Supreme Court upholds its decision, Sistema still has a viable alternative in the auction.

But the bigger question remains: is slashing the price of CDMA spectrum enough to ensure that the three players using this technology – Sistema, RCom and TTSL – have a future in a system that is dying globally, with only 10 per cent of the global mobile population still using it?

The problem goes back to an early government decision to link licensing to technology instead of making it technology-neutral. This meant applicants had to either apply for GSM or CDMA technology. The three CDMA players have invested more than Rs 50,000 crore and now have over 100 million customers out of a total customer base of 800 million. They cannot close operations because that would mean a large part of the capital investment in electronics and switches would have to be scrapped if they want to shift to GSM, leading to huge losses (for RCom and TTSL, the problem is leavened by the fact that they also run GSM services).

Their hope lies in the government giving these players a migration path. Many argue that the solution is simple. Why not “liberalise” the 800 Mhz band? This would entail allowing CDMA operators to use it for any service – 3G or 4G – rather than locking them into only 2G services as the auction forces them to do. This is a path many CDMA operators across the world have taken to make the shift to 3G and LTE (Long-Term Evolution, a standard for 4G). There is a precedent in India, too; at the recent 1,800 Mhz auction the spectrum was offered as “liberalised” and not restricted to 2G services.

But the problem lies in the fact that unlike in other countries, the government has no more spectrum available in the 800 Mhz band after the auction, so the scope for operators to expand is blocked. Indeed, even what is available is insufficient for the three operators to start 3G or 4G services, let alone expand.

Sistema, for instance, has been allocated only 2.5 Mhz of spectrum. Even if it is able to retain the same amount in the auction, the reality is that 3G and 4G services require a minimum of 5 Mhz to 10 Mhz to start with. To compound the problem, only 2.5 Mhz of spectrum in the auction is available in contiguous bands, which means taking any spectrum beyond this will dramatically increase operating costs and capex for operators.

So, even if the 800 Mhz band were liberalised, CDMA operators cannot viably use it for 3G and 4G services. In comparison, 4G players in the country are sitting on 20 Mhz of spectrum in the 2,300 Mhz band.

So, what is the future? A look at what other countries are doing could offer a clue. In the US, for instance, Verizon, one of the world’s largest CDMA operators, has already made the transition by offering 3G and LTE services in the 800 Mhz band — though it already has more than 10 Mhz of spectrum to start with. China Mobile is doing the same. In Russia and east Europe, companies are using the 450 Mhz band to offer LTE services. Sprint in the US is offering LTE on the 1,910 Mhz band. And the South Korean CDMA players have shifted to offering LTE on various bands from 700 to 900 Mhz.

The Telecom Regulatory Authority of India has made similar recommendations in a report to the government. It has suggested that there is need to re-farm spectrum in the 800 Mhz band, too, so that CDMA operators who require more spectrum to offer 3G services like EVDO (Evolution Data Only) can be accommodated. It had suggested that the 450 Mhz and the 1,900 Mhz bands be given to them. CDMA operators, in turn, have pointed out that there is about 40 Mhz of spectrum available in the 450 Mhz band and another 20 MHz in the 910 Mhz band that can be auctioned to them. The solution, clearly, lies squarely with the government.